How Will The Role Of Amazon Web Services Change In The Future?

How Will The Role Of Amazon Web Services Change In The Future?

Amazon’s AWS (Amazon Web Services) segment is expected to continue to play an increasing role in total company revenue, according to current Visible Alpha consensus. AWS as a percentage of total revenue is slated to increase by over 300 basis points over the next two years, from 9.0% of total company revenue in 2016  to 12.3% in 2019.

The Declining Role of AWS In Amazon’s Operating Margins

While the AWS segment contributes heavily to Amazon’s operating income today (88% in 2016), it will play a much smaller role in the future. Current Visible Alpha estimates project AWS to contribute only 63% of overall operating income in 2020, a 2500 basis point drop from 2016.

AMZN Margin Chart x

Source: Visible Alpha

2 Possible Reasons for the Change in AWS as a Percentage of Total Operating Income

There may be two reasons for this discrepancy. First, analysts may feel that growing competition from Microsoft’s Azure platform and Google will limit Amazon’s pricing power. Second, the analysts are projecting that Amazon will realize greater economies of scale from its retail segment in the future.

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